US: First-Time Home Buyers Feel Defeated by Rising Prices and Rates

Brianna Lombardozzi finally has her finances at a point where she might be able to buy a house, but she doesn’t feel too sure about her chances.

Lombardozzi37, used her federal stimulus checks and other savings accumulated during the pandemic to pay off most of her credit card debt, a move that helped her credit score jump nearly 100 points.

However, competition is intense for homes in its price range, between US$175,000 and US$225,000, in Central, South Carolina, and in the last month four offers have been rejected. Now that interest rates on mortgages are rising, he doesn’t know if he’ll find an affordable property before his lease expires at the end of May.

“Right now I feel a little defeated,” says Lombardozzi, who works at a local university.

As home prices soar, home affordability sinks to the lowest levels since 2008, and first-time homebuyers – who have not benefited from rising home values ​​and are also coping to rising rents – are coming under pressure.

First-time buyers accounted for 27% of existing home sales in January, according to the National Association of Realtors (NAR)close to 2014 levels.

With mortgage rates above 4%, the highest in about three years — and expected to continue to rise — buyers on tight budgets may have an even harder time finding homes they can afford.

Home demand soared during the pandemic as buyers took advantage of low mortgage rates and remote workers sought more space to live.

Some people, like Lombardozzi, saved money they would normally have spent on trips or dining out while much of the economy was shut down, leaving them with more cash to potentially invest in a home.

At the same time, the number of homes for sale fell as some homeowners decided not to budge due to uncertainty, while supply chain disruptions and labor shortages held back new home construction.

Although some imbalances are narrowing, the supply of homes for sale at the end of January was at an all-time low, enough to last only 1.6 months, according to NAR data. This is forcing buyers to compete for limited supply and to raise prices.

By the end of 2021, housing affordability fell to the lowest levels since November 2008, with median-income households needing to spend almost 33% of their income to afford a median-priced home.according to the Atlanta Federal Reserve.

Usually, Housing is considered affordable when households do not spend more than 30% of their income on it.

Affordability may be further affected by rising mortgage rates. Some people who had been pre-approved for a mortgage may find they no longer qualify for the same maximum loan amount after a rate hike, he said. Jennifer Beestondirective of Guaranteed Ratea mortgage lender.

First-time home buyers are looking to compete with all-cash offers, including those from institutional investors like private equity funds, which are taking a larger share of purchases and are seen as less risky by sellers, analysts say.

Cash purchases accounted for 27% of sales in January, up from 19% a year earlier, according to the NAR.

And some new buyers are being outbid by people with enough cash to pay above what a mortgage banker is willing to lend, based on the home’s appraised value, he said. Erica Barrazareal estate broker in the area of Seattle.

Many potential buyers find that they have to increase their budget or lower their requirements to have a chance of winning the bid. They must also act quickly, viewing homes the same day they go on the market and making offers within a day, or minutes, of visiting.